Scotland's economy has enjoyed its longest period of sustained growth since 2001 with 11 consecutive quarters of growth, the Scottish Government's chief economist reports.

Growth has been driven partly by large one-off public building projects, though “upbeat” forward growth forecasts have been tempered slightly by both internal and external economic challenges.

The Scottish Government's chief economist Gary Gillespie said Scotland's economy many not be keeping pace with consumer spending.

A report published by Strathclyde University's Fraser of Allander Institute in June suggested Scotland's economic output is currently being fuelled by a combination of capital investment, notably infrastructure spending, and consumer spending.

The Institute said the Scottish economic growth “remains unbalanced with household spending the key driver fuelled largely by rising household debt, which we fear may soon become unsustainable”.

Fraser of Allander had warned UK Government plans to impose further austerity measures would pose a threat to Scotland's economic recovery.

Gillespie's latest State of the Economy report suggests consumer confidence has been recovering since early 2013, “underpinned by improving employment prospects and, to a lesser extent, low prices, both of which have boosted household incomes”.

He said while rising consumer consumption growth was “welcome to the extent that it reflects rising consumer confidence and household income”, he adds growth in household income has not kept pace with consumption, “resulting in the savings ratio in Scotland falling”.

The report states UK household debt “remains high in comparison to countries like Germany and the US, which leaves UK households “vulnerable to an income shock, with attendant risks for aggregate demand.”

Low interest rates have contributed to improvements in lending conditions, which Gillespie said has “fed through to consumption of durable goods in particular – for example new car registrations in Scotland have seen very strong growth”.

Gillespie said a pick-up in productivity and real wages is needed to support consumption patterns.

The latest State of the Economy report suggests recent construction sector growth was unlikely to continue indefinitely given the number of major infrastructure projects are nearing completion.

Private sector-led new construction work “showed a more muted picture over the year” with contractions in the private industrial and commercial categories - including new retail and warehouses premises - offset to an extent by growth in private housing construction.

However Gillespie said the outlook for the construction sector for the rest of the year is “positive”.

The State of the Economy report suggests low oil prices have helped to keep costs and prices – and therefore inflation – low, which has boosted demand in many countries.

However Gillespie warns the impact on inflation is expected to “start unwinding towards the end of this year and, with economic conditions generally positive in advanced economies, central banks in the US and UK have resumed their signalling on policy interest rates rises”.

The fall in oil prices is also continuing to work through the Scottish economy, which has led to cutbacks in investment and employment in the oil sector and has had a “negative impact on the onshore supply chain”.

“However, this needs to be set against the positive impact that lower oil prices have had on the wider Scottish economy and the boost that it has provided to household incomes,” Gillespie added.

He said leaving oil and gas aside, “the wider outlook for the economy remains upbeat”.

“Employment and investment continued to grow in the early part of 2015 and business and consumer surveys paint a positive picture of firm and household economic behaviour for the second half of the year, Gillespie said.

“External tail risks are still present, for example the drag on demand from fiscal policy tightening at the UK level and from weak demand in key export markets.

“Nonetheless, forecasters are predicting the positive growth momentum from last year to continue this year, with growth of around 2.4 per cent expected.”